Tax Changes for Holiday Homes

Proposed changes to the tax rules for holiday homes could significantly reduce or even eliminate deductions where a property is mainly used for private purposes rather than genuinely rented out.​

What is changing

• A new draft ATO ruling, TR 2025/D1, is proposed to replace IT 2167 from 1 July 2026. Under this draft, holiday homes that are “mainly” used for personal purposes may be reclassified as leisure facilities, with many ownership and running costs becoming non‑deductible.

When deductions are at risk

• If a holiday home is in a popular seasonal location (for example, ski or beach areas) and is taken off the market during peak periods, the ATO is more likely to deny deductions.

• Limited attempts to rent the property, locking up parts of the property so guests cannot use them, charging well above market rent, or renting cheaply to family and friends can all point to “leisure facility” use.

What ‘mainly income producing’ means

• To keep claiming deductions, owners will need to show the property is mainly used to earn income, not just as a private retreat.

• Evidence that supports this includes regular listings, realistic pricing, minimal blocked‑out owner periods, and records of enquiries, bookings and rental receipts.

Practical steps for owners now

• Ensure the property is genuinely available for rent in peak demand times such as Christmas, New Year, Easter, long weekends and school holidays.

• Set rent at fair market value and avoid excessive conditions like “no children”, “no pets” or strict reference requirements that effectively deter bookings.

Record‑keeping and next deadlines

• Keep thorough records of rental advertising, booking requests, occupancy levels, pricing, and all property expenses to support deduction claims in future reviews.

• Consultation on the draft ruling and related practical compliance guides closes on 30 January 2026, so further refinements are still possible before 1 July 2026.

Email bronwyn@cloudhouse.consulting or samantha@cloudhouse.consulting or phone 0438 810 589 for further assistance.